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Student-borrowers may soon have something to cheer about. Banks are likely to allow extended repayment period of upto 15 years for education loans, against 5 to 7 years now.
The extended period, according to Mr K. Unnikrishnan, Deputy Chief Executive, Indian Banks' Association, is along the lines of the education loan scheme in the UK.
The extended loan repayment period is expected to ease the burden of instalments on student-borrowers, especially those who enrol in private professional colleges but are unable to get good job placements.
Banks too will benefit from the extended period. Once the load of high instalments is taken off, loan defaults will come down, thereby saving banks from making provisioning, say bankers.
Like home loans, the incidence of defaults in small-ticket education loans is high, Mr Unnikrishnan said.
This is the third time that the IBA's model educational loan scheme for pursuing higher studies in India and abroad is undergoing a revision. The scheme was first introduced in 2001.
“The UK education loan scheme allows for an extended repayment period, till almost the time the borrower nears retirement. The loan repayment does not start until the borrower earns more than 2,100 pounds a month. Once the borrower starts earning more than this, his employer is duty bound to cut the education loan instalment and remit the same to the bank,” said the IBA official.
The main features of the scheme are maximum loan limit of Rs 10 lakh for studies in India and Rs 20 lakh for studies abroad; no margin money for loans up to Rs 4 lakh; margin money of 5 per cent for loans above Rs 4 lakh and studies in India and 15 per cent for loans above Rs 4 lakh and studies abroad.
For loans up to Rs 4 lakh, parents have co-obligation but no security is taken. For loans above Rs 4 lakh and up to Rs 7.5 lakh, parents having co-obligation for the loan and have to provide collateral in the form of a suitable third-party guarantee. For loans above Rs 7.5 lakh, parents have co-obligation, they have to provide tangible collateral security along with assignment of future income of the student for payment of instalments.
The outstanding loans of public sector banks for education as on March 31 stood at Rs 43,074 crore (Rs 35,628 crore as on March-end 2010) in 22.35 lakh (19.28 lakh) accounts.
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